Royal Nickel strikes again with True North

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By: Trish Saywell2014-06-18

Less than two months after Royal Nickel (TSX: RNX; US-OTC: RNKLF) acquired a strategic 25% stake in Sudbury Platinum, which is advancing the Aer-Kidd nickel–cobalt–platinum group metals project in the Sudbury basin, the junior has announced a deal in which it will acquire a 56% stake in True North Nickel, a private company that owns 100% of the West Raglan nickel sulphide project in Quebec.

Dundee Corp. owns the remaining 44% stake in True North and intends to hold on to its investment, Mark Selby, Royal Nickel’s president and CEO, told analysts and investors on a conference call.

“[Dundee] is keen on the asset and would like to remain partners with us on that property, and that speaks to the quality of the asset we’ve acquired,” Selby confirmed in response to a question about whether Royal Nickel would want to buy more of True North if it could. “The only way to get additional [ownership] is if we overfunded our share of the investment in the property and they decided not to participate on a pro-rata basis.”

West Raglan lies in the centre of the Cape Smith nickel belt in northern Quebec, 40 km from Glencore Xstrata’s producing Raglan mine to the east and along strike. The nickel belt also hosts other high-grade nickel sulphide deposits, such as Jilin Jien Nickel’s Nunavik mine project.

Adding West Raglan — 1,400 km from Royal Nickel’s 100%-owned Dumont nickel project in the Abitibi region of northwestern Quebec — gives the company broader exposure to a rapidly improving nickel market and strengthens its position as a pure-play nickel vehicle on the Toronto Stock Exchange, Selby said. It also brings with it True North’s other assets: Donald McInnes, the company’s chairman and CEO, and co-chairman Mark O’Dea.

McInnes will join Royal Nickel’s board and O’Dea will become a special advisor. McInnes brings more than 20 years of experience in natural resource development and founded Kutcho Copper Corp. (formerly Western Keltic Mines Inc.) and Plutonic Power Corp., a renewable power development company. O’Dea was co-founder and CEO of Fronteer Gold and Aurora Energy Resources, which were sold to Newmont Mining (NYSE: NEM) and Paladin Energy (TSX: PDN; US-OTC: PALAF) in 2011.

“The basic premise is that since the takeover of both Falconbridge and Inco . . . there has been a gutting out of integrated base-metal companies in Canada,” McInnes says in a telephone interview after the conference call.

Despite the presence of companies like Hudbay Minerals (TSX: HBM; NYSE: HBM), First Quantum Minerals (TSX: FM; LSE: FQM), Teck Resources (TSX: TCK.B; NYSE: TCK) and Sherritt International (TSX: S), McInnes continues, “there really is still a void in the nickel space, and we think that there is a collective opportunity because nickel has been at such low prices for such a long time that there is an opportunity to rebuild a great Canadian nickel company, and we’ve come together with Royal Nickel with that goal.”

McInnes also points out that Royal Nickel has the advantage of having a management team that had been at the core of Inco. Chairman Scott Hand was the former chairman and CEO of Inco from April 2002 to January 2007. Also on Royal Nickel’s board are: Peter Goudie (former executive vice-president of marketing at Inco from January 1997 to January 2007, and at Vale Inco until February 2008); Peter Jones (former president and chief operating office of Inco from February 2001 to November 2006); and Tyler Mitchelson, who has spent more than 15 years in the nickel industry at Inco and Vale Inco.

As for nickel prices, McInnes predicts prices for the base metal will exceed US$10 per lb. “We’re going to be in a good nickel bull market and this merged company is going to be well positioned to create wealth during this period of time.”

Nickel has been the best performing base metal so far this year — moving from US$6 per lb. to just under US$9 per lb. in the last six months — and remains the bright spot in the metals market, McInnes says.

According to Selby, nickel “will be the best performing base metal in the next decade.”

The company believes nickel prices could exceed US$50,000 per tonne (US$22.68 per lb.), which was last seen in 2006–2007. The combination of the Indonesian concentrate-export ban and structural supply shortfall will lead to multi-year nickel shortages as early as mid-2015, despite record London Metal Exchange inventories of 260,000 tonnes and ore stockpiles in China, Royal Nickel argues.

Portside nickel ore stockpiles in China from Indonesia have fallen since February at a rate of 400,000 tonnes per week, Royal Nickel notes in a corporate presentation outlining details of the True North transaction. In addition, China’s nickel ore imports from Indonesia are drying up at the same time the Philippines has provided little additional ore to China.

True North acquired West Raglan from Anglo American (LSE: AAL) in August 2012. Anglo American invested $44 million in the project, drilling 38,000 metres in 197 holes. True North has spent $6 million and drilled 5,500 metres in 32 holes.

Seven zones of nickel–copper–PGM sulphide zones have been identified so far on the 700 sq. km property. One of the zones, called the Frontier zone, includes five high-grade lens clusters. Glencore’s Raglan mine hosts similar clusters of mineralized lenses in 12 zones, four of which are in production and feeding a central mill facility, according to Royal Nickel.

Royal Nickel points out that outcropping sulphide mineralization has been found across more than 35 km of strike at West Raglan and there has been limited testing so far. In its presentation Royal Nickel also states that the magnetic signatures, lithogeochemistry and geology at West Raglan is the same at the Frontier zone and at Raglan, and there is potential for more tonnage, with two untested zones at surface at the Beverly and Red zones. It also believes that on the south part of the West Raglan property, magnetic and till anomalies suggest mineralization at the Nunavik mine.

“The Raglan mine has been reported to be — and I can’t verify this — but I believe it’s one of the most profitable nickel operations in Glencore’s fleet, and geologically we’re in the exact same environment as the Raglan mine,” McInnes says.

Under the letter of intent announced June 2, Royal Nickel’s 56% acquisition of True North is for a consideration of 5.6 million Royal Nickel shares, which represent a $3.5-million value. Existing True North options and warrants may be converted and replaced with Royal Nickel options and warrants. The West Raglan project is also subject to a “typical net smelter return royalty,” Selby said, of which the company can buy back half when the property is acquired.

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